Mumbai: Shiksha Finance, a non-banking financial company (NBFC) focusing on school and student loans, has raised $2.5 million (Rs16 crore) through a mix of debt and equity from Michael & Susan Dell Foundation (MSDF), a senior executive of the company said.

Incorporated in 2014 by V.L. Ramakrishnan and Jacob Abraham, Shiksha provides loans to schools to help develop infrastructure and loans for students to help families from lower-income groups finance education of their children.

The company provides finance for school-going children from kindergarten to Class 12, with the objective of reducing school dropouts. It is currently active in the states of Tamil Nadu, Karnataka, Andhra Pradesh and in Puducherry.

According to Ramakrishnan, both school and student loan products are niche segments, but the opportunity is humongous.

“Our target segment is private schools. Tamil Nadu has around 55,000 schools, of which 22,000 are run by private entrepreneurs and that is our target segment for the school loans. The state has around 12.8 million students of which 6.8 million are studying in private schools. So the market size is huge,” said Ramakrishnan.

For schools, Shiksha provides two kinds of loans—unsecured loans from Rs1 lakh to Rs15 lakh and secured loans of up to Rs2.5 crore.

“The loans are generally used for development of the education institute, working capital requirements, acquisition of land for expansion, setting up computer labs or smart classes or even construction of a basketball court,” said Ramakrishnan.

Student loans are disbursed to the schools directly so that the end use is clearly established, he said, adding that the average size of student loans is around Rs16,000 with a tenure of 10-12 months.

The lender expects to end the month of September with a loan book of Rs45 crore, of which student loans contributed Rs3 crore. The funding from MSDF will largely go towards helping build the student loan book.

“We expect to end the financial year with a loan book of Rs100 crore. We have thus far funded close to around 600 schools and around 2.5 lakh students studying in these schools. On the student loan side, we have financed almost 2,800 students so far,” he said.

The company also plans to expand to the states of Telangana and Maharashtra and plan to start operations in select markets soon.

For MSDF, which has committed close to $1.4 billion globally, education is an important area of focus. In India, the foundation has committed close to $120 million, across grants and equity investments, since setting up a presence here in 2006. Almost 70% of its India commitment has been towards education focused investments.

“Apart from school loans to improve infrastructure, Shiksha will also start becoming a platform where parents of children and children themselves will be able to access their financial needs during school education and in the future maybe also after school education,” said Prachi Windlass, portfolio director – India education at MSDF.

Student loans for school education is non existent in India right now and it’s a huge financial burden, she said. “On a continuous basis, we find that the one-time annual fee of the schools are a big financial burden for parents,” said Windlass.